Unions, Obama Cut Backroom Deal on Health Care Tax Exemption

For organized labor, if there’s anything better than a federal takeover of health insurance, it’s a federal takeover of health insurance with a generous tax exemption for union-sponsored plans. Union leaders, led by AFL-CIO President Richard Trumka (see photo), this week gave the country a first-hand lesson on how to play behind-the-scenes political hardball. Yesterday, following a three-day marathon negotiating session, the nation’s top labor officials announced they had reached an agreement to delay introduction of a federal excise tax on high-cost union-negotiated health insurance plans. While a number of Republicans are calling the deal a political giveaway, union leaders are spinning it as another example of doing right by working Americans.

The Obama administration and congressional Democrats are about to get the massive overhaul they long have sought. Late last year the House and Senate, by respective margins of 220-215 and 60-39, passed separate measures to extend health care coverage to as many as 36 million persons. The House measure would run slightly in excess of $1 trillion over the next decade; the Senate bill would cost $871 billion over that time. In each case, passage occurred following a minimum of debate. But from the start, lawmakers have had strong disagreements over who would pay, especially on the matter of how to tax high-end insurance policies. The Obama administration feared this issue could pose a permanent impasse during legislative conference sessions. In the face of this potential lost window of opportunity, the President brought in a group of union officials to hammer out a deal.

And lo and behold, a deal was reached: The proposed surtax on costly insurance plans for potentially affected private- and public-sector union members would be delayed until 2018 – that is, five years after the new law would take effect. Other high-end plans would pay from the start. The Senate had been set to impose a 40 percent excise tax on family policies costing over $23,000 annually, well above the national average of $13,400. Democrats had touted the tax as necessary to create an extra $150 billion in revenues over the next decade. The problem was that the tax might fall heavily upon union members, many of whom currently enjoy so-called “gold-plated” or “Cadillac” health plans. About one in four members would be so affected. The challenge, then, was retaining the tax while making sure that a key Democratic constituency wouldn’t be unhappy with it. In addition to providing a five-year exemption, the agreement also raised the $23,000 minimum family plan cost threshold to $24,000 and the individual threshold from $8,500 to $8,900.

Labor leaders are delighted with the deal. The AFL-CIO’s Trumka put it this way: “We think we’ve done a great job for all working Americans out there and that includes union members.” Anna Burger, head of the rival labor federation Change to Win, likewise stated, “The compromises we reached in the last 24 hours make a huge difference in making sure that workers who have good health care can hold on to their health care.” Republican lawmakers are denouncing the agreement as a case of interest-group politics at its worst. “This latest backroom maneuver is yet another example of how the administration and their enablers in Congress will cut deals with their special-interest allies to impose a government takeover of health care,” said Rep. John Kline, R-Minn.

One would think health care industry officials would protest as well. But for all intents and purposes, they agreed to be neutered last year. Last June, for example, the Pharmaceutical Research and Manufacturers of America (PhRMA) and the Obama White House reached an agreement by which the industry would contribute $80 billion over 10 years to a health care overhaul to be paid for out of prescription drug discounts, especially from recapture of Medicare purchases. PhRMA would gain millions of new customers, all right, but at enormous taxpayer cost.

All of this raises the stakes for this coming Tuesday’s special election in Massachusetts for the U.S. Senate seat long occupied by the late Ted Kennedy and currently occupied in the interim by Kennedy loyalist Paul Kirk. The Republican, State Senator Scott Brown, according to a recent Rasmussen Poll, has pulled nearly even with his opponent, Massachusetts Democratic Attorney General Martha Coakley. A Brown victory would give Senate Republicans the crucial 41st vote to prolong a filibuster; at present, Democrats outnumber Republicans by a 58-40 margin, and receive support from two Left-leaning Independents, Joe Lieberman (Conn.) and Bernard Sanders (Vt.). President Obama and the unions read polls, too. Maybe that’s why they were so hasty to work out this backroom arrangement.